Honghua Group Ltd together with its subsidiaries a leading global land drilling rig manufacturer announce that the Groups wholly-owned subsidiary, Sichuan Honghua Petroleum Equipment Corporation Ltd entered into a Joint Venture Agreement with Gansu Huateng Petroleum Machinery Manufacturing Co Ltd on December 5 2011.

Pursuant to the Agreement, Honghua will establish a wholly-owned subsidiary in Gansu Province, China with a registered capital of CNY 42 million in cash. The Project Company will acquire certain assets from Gansu Huateng at a consideration of approximately RMB39 million. Thereafter, Sichuan Honghua will make a capital contribution of RMB42 million in cash and Gansu Huateng will contribute its remaining assets worth approximately CNY 36 million for the formation of the joint venture company. Upon completion of the capital contribution and the formation of the JV Company, the registered capital of the JV Company will be RMB120 million with Sichuan Honghua and Gansu Huateng holding 70% and 30% interest respectively of its equity.
Fracturing equipment is mainly used in increasing oil production for mature oilfields and unconventional gas exploration operations. Following the steady development of the unconventional gas exploration industry and surging demand for increasing mature oilfield production in China, it is anticipated that the demand for fracturing services and related equipment will grow rapidly. Currently, the fracturing equipment industry is in a rather slow pace of development with a relatively low production capacity, which allows enormous room for potential development. Leveraging on the leading R&D and production technologies of Honghua and Gansu Huateng in oil and gas drilling and fracturing equipment, Honghua believes that the JV Company will enjoy strong competitiveness and synergistic benefits, and become a leading enterprise in the fracturing equipment market.

Mr Zhang Mi Chairman of Honghua said “Following the growing market demand for increasing oilfield production and unconventional gas exploration and utilization, the demand for fracturing equipment will also increase correspondingly and motivate the constant development of the industry, bringing potential business opportunities to the JV Company. Gansu Huateng possesses leading oil fracturing equipment production technologies and consolidation capacity in China, allowing the JV Company to cut procurement costs significantly and upgrade its integrated competitiveness. The cooperation between Honghua and Gansu Huateng will enhance the Groups unconventional gas and fracturing equipment production chain and its oil and gas equipment product structure. It will also increase the in-house production rate, reduce production cost and bring strong synergic effects. Leveraging on its strong research and production capability, Honghua will continue to penetrate the unconventional gas exploration and fracturing equipment market, so as to bring maximum returns to shareholders.”